An article in the English-language of the German der Spiegel newspaper reported that the billion-dollar Sovereign Wealth Funds (SWFs) have lost up to 25% of their value – depriving the markets of a major cash source.

For those of you unfamiliar with SWFs, they are state-owned investment houses whose charter is to protect any budget surplus with prudent investments. The commodity boom of the past few years has filled the coffers of SWFs rich in raw materials such as oil, natural gas and metals.

Thought to be impervious to market swings, SWFs were held up as secretive groups with an uncanny knack for finding the best investments. That reputation blew up, however, when SWFs started to prop up Merrill Lynch, Citigroup and other big investment banks that ultimately lost a bundle.

These once-infallible mega-investors are now liquidating as they try to save their butts. In the process, money that they would have allocated to major investment projects such as commercial real estate, banking, oil exploration and other cash-intensive endeavors is simply going away.

The implications for both emerging and industrialized markets are profound, fueling speculation that the economic malaise could last longer than previously anticipated.

The article in der Spiegel reports that Norway’s $300 billion Government Pension Fund-Global, was down 7.7 percent in the September quarter. It was the worst performance in the 18-year history of the fund, which invests Norway’s oil revenues.

All told, SWFs have lost 18% to 25% this year alone, according to der Spiegel story. That could mean some $700 billion in cash has been taken out of the global investment pool.

The Abu Dhabi Investment Authority, perhaps the world’s biggest SWF, may have lost up to one-third of its $900 value, the German newspaper said. Things were bad in other Mid-East SWFs as well.

The Kuwait Investment Authority lost about 30% of its $250 billion reserve, although $50 billion of those losses may have been recouped with a new infusion of oil money. The Qatar Investment Authority is thought to be down 20% in 2008.

As the recession continues, where will new money come from? Well, it seems that taxpayers are picking up where the oil sheiks left off with bailout campaigns going on all over the world.

More from Justice in Taipan Daily:

Hear ye, hear ye, one and all: The supercycle is dead. Long live the supercycle!

Commodities on the whole have declined nearly 50% from their peak as a result of the credit crisis. This has led some to declare that the “commodity supercycle” – the idea that we are merely in mid-innings of a massive, multi-decade commodity bull market – is defunct too.

I’ll admit it… the weekly chart is hard to ignore. If one had to assess the health of the supercycle by way of the Reuters CRB Index alone (as shown above), Monty Python’s Dead Parrot sketch would spring to mind.

Really though – in spite of deeply dire appearances, it’s a fair question to ask: Has the commodity supercycle shuffled off its mortal coil? Are we now dealing with an “ex-supercycle?”

Believe it or not, there’s a case to be made that the commodity supercycle is not dead – that it really is just resting – despite the speed and ferocity with which commodity prices have been chain-sawed in half.

Let me explain…

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Cures What Ails Ya

There is a hoary old saying in the commodities biz: “The best cure for high prices is high prices.”

What this means is that, when a commodity gets pricey enough, production naturally expands. Expensive oil & gas leads to more drilling in hard-to-get-at places… expensive hogs lead to more hog farming… expensive corn to more corn acreage being planted, and so on. High prices, in other words, act as a “cure” for high prices by drawing new supply into the market.

The same idea works in reverse: “The best cure for low prices is low prices.”

As you can probably guess, the “low price” cure means that when a commodity gets cheap enough, producers start throwing in the towel. New projects are canceled… existing production is cut back… and marginal production is shut down entirely. As profit margins fall, more and more producers rein it in… or simply throw up their hands and quit. Over time, this winnowing process shrinks supply until it matches up with newly reduced demand. Then things stabilize, demand shifts, and the cycle begins anew.

So here’s the ironic thing: Those who declared commodities to be in a “bubble” feel vindicated because commodity prices have been smashed. And yet, today’s ultra-low commodity prices are merely reestablishing the same conditions that fed the supercycle thesis in the first place!

From High to Low (in Record Time)

When the commodity bull really hit stride, it was largely based on a strong outlook for global growth. With so many emerging market countries coming of age, resource after resource was projected to be in short supply as far as the eye could see. Investors of all stripes and sizes, from institutional on down, wanted a piece of the action.

Then the mortgage bubble popped, trust and liquidity evaporated, and credit and commerce fell off a cliff.

Not wanting to be left out, commodity prices jumped off a cliff too… and now things have come full circle. Commodities fell so violently and so quickly, we’ve been rudely transported backwards (or perhaps forwards) to the “low prices cure low prices” part of the cycle again!

For many commodity producers – and metal miners in particular – these new low prices (no pun intended) aren’t high enough to justify keeping the doors open. (That hushed sound you hear? It’s an idle haulpak with an empty gas tank; keys left dangling in the ignition.)

Pity the Miners

Pity the poor miners. Well before the panic and ensuing collapse, profits in the mining business were being squeezed by rising costs. The cost of essentials like fuel, skilled labor, equipment, and even oversized truck tires threatened to spiral out of control.

Due to this relentless “cost creep,” many of the miners – precious metals in particular – struggled to maintain healthy margins even when metals prices were riding high.

And thus when the credit bubble burst, the fall in prices was so vicious that many miners’ profits were simply wiped out. All those sky-high operational costs came down too, it’s true – but that was cold comfort in light of bank credit, investor capital, and pricing power all disappearing into thin air at once.

So now we have a situation where marginal miners all over the globe are shutting down. Operations that were profitable three to four months ago are now bleeding red ink… and screeching to an utter halt.

“Virtually all [mining] projects except those of the biggest companies need financing,” the Wall Street Journal observes, “and even some of the largest still need to borrow after starting out with equity capital.” The debt window is closed, and raising new equity in these conditions would take a miracle.

As a result of all this, production levels are being scaled back rapidly. New production is no longer in the pipeline. And post-panic prices suggest the world has given up on growth.

The Global Growth Question

Say, what about global growth? Is the uptrend in long-term demand dead too?

We know that a large element of this “fire sale” was forced asset selling… a vicious little quirk of the credit crisis that has nothing to do with fundamental outlook. But investors also seem to be arguing for a world of much diminished demand for a long time to come. That could be a mistake.

Rick Rule, a legendary natural resource investor with 35 years experience, points out that emerging market demand going forward could be “steadier… than many people think… simply because the developing countries’ balance sheets are better than we are accustomed to.”

I agree with Mr. Rule. This is the first crisis we have seen where the balance sheets of many emerging countries actually look better than those in the Western World. Not all, but many, of the upcoming emerging market players stuffed the proverbial mattress with cash during the run-up.

China alone, for example, has nearly two trillion dollars in reserves… Russia more than half a trillion at last count… India nearly a quarter trillion. Having that kind of cash on hand can smooth over a lot of bumps on the road to middle-classdom. Their stock markets may be punk, but emerging market consumers could be back in action sooner than we think.

Lags and Gaps

There is another thing to remember about commodity price swings: Normally the shift from high to low prices (or vice versa) takes quite a while. This is because of time lag. Simply put, it physically takes a long time for production to adjust to an upward shift in demand. It’s not as if you can throw a switch and suddenly have a new mine or refinery or power plant in operation just like that. The preparation process – assessing, planning, funding, building – takes years.

Much of the supercycle thesis was predicated on the idea that it will take a very long time – perhaps a decade or two – for the world’s lagging commodity infrastructure to catch up with soaring global demand. As far as I’m concerned, that thesis is still in play.

Right now, commodity production trends and global demand trends have both flat lined (or even flat out declined). But when commodity demand trends start ticking up again – something that is bound to occur – it will happen at a faster rate than production can match. In the long term, this velocity discrepancy is what truly matters.

Think of two upward sloping lines that intersect in the lower left corner a graph. The X axis equals time, the lower sloping line equals commodity production, and the higher sloping line equals global demand trends. Though both lines move higher with time, the distance between the upper and lower line only gets wider as you move to the right.

That’s why I think the supercycle still lives, be it lying at the bottom of the stairs in a heap at moment. Global demand will be back… and when demand trends get back on form, they will again outpace our ability to keep up. And with so many commodity operations scaled back or mothballed thanks to the credit crunch, the starting gap will be even wider when things get rolling again.

And Don’t Forget Gold

And by the way, don’t forget gold in all this. With fiat currencies headed for a predestined tragedy of Shakespearian proportions, it doesn’t take a genius to see how physical gold demand could rise. Gold bars and coins are already flying from the vaults. Faith in the yellow metal will only wax further as faith in paper wanes.

And as for the miners’ role? John Embry, Chief Investment Strategist for Sprott Asset Management, states things flatly: “When the gold’s all gone, the market will go nuts.”

“If gold hasn’t moved up by the end of this year, I would be very surprised,” Embry says. “People don’t realize how distressed the gold mining industry is. Even at $1,000, miners weren’t doing very well. At $800, the entire industry is in crisis. Costs have risen so much, nobody’s making any real money. In fact, some mines are starting to close.”

Embry thinks gold would have to hit at least $1,200 an ounce before the shuttered mines reopen… a 50% rise from gold’s price as of this writing. And if, or should I say when, gold reaches that new high, it will likely be on the way to even higher climes.

And now if you’ll excuse me, I’ve got to go research some very attractive junior mining candidates. Long live the supercycle!

Source: Is the Commodity Supercycle Dead… or Is It Just Resting?

Only 21% of Europeans are willing to eat genetically engineered food, according to a survey by the European Commission.

Some nations, such as France, have banned the planting of genetically modified crops, while others like Germany have enacted laws that allowed foods to be labeled as “GM free.”

Critics insist that such foods could pose risks to health and the environment, and further assert that genetically modified crops produce better yields.

“Most testing is carried out by the very biotech companies that have the most to gain from results that say GM food is safe,” the activist group Friends of the Earth says on its Web site. “Growing GM crops also threatens wildlife and the production of GM-free foods. What’s more, some GM crops could allow more pesticides to be used.”

But global demand for foodstuffs is on the rise, and as supplies tighten, prices continue to soar. For instance, global corn consumption is expected to rise to 793.1 million tons in 2009, up from a record 778.9 million tons this year. Stockpiles are expected to fall to just 103.3 million tons next year. Corn prices have surged about 75% over the past year and 17.5% since early June.

The price increases have trickled into the meat and dairy industry, as corn is widely used in animal feeds. Tyson Foods, Inc. (TSN), the Arkansas-based meat producer, has predicted that retail chicken prices will have to jump by double-digit percentages in 2009 for poultry processors to recoup their feeding costs, according to the Times Online.

Higher feed prices will eventually filter through to the cost of milk, cheese and yogurt, too, since 65% to 75% of a dairy farmer’s production costs are for feed, Chris Galen, a spokesman for the National Milk Producers Federation, told The Associated Press.

The World Bank estimates that worldwide food prices have risen a scorching 83% over the past three years. And the president of the World Bank, Robert B. Zoellick, estimates that the spike in food prices could push 100 million people in low-income countries deeper into poverty, as food costs cut into already meager earnings.

The biotech industry claims it can help. Research by the U.S. Department of Agriculture found that one variety of genetically modified corn yielded 9% more than conventional corn. The International Service for the Acquisition of Agri-Biotech Applications, which encourages developing countries to adopt GM technology, says GM cotton has increased yields by 50% in India.

Monsanto Co. (MON), whose insect resistant crops have gained widespread popularity among U.S. farmers, has pledged to double yields on corn and soy by 2030.

Genetically modified crops have become so popular in countries like the United States that they are actually cheaper and more readily available than their non-GM counterparts.

“We cannot get hold of non-GM corn nowadays,” Yoon Chang-gyu, director of the Korean Corn Processing Industry Association, told the International Herald Tribune.

According to Yoon, non-modified corn costs Korean millers about $450 per metric ton, up from $143 a metric ton in 2006. Genetically engineered corn costs about $350 per metric ton.

In 2007, 75% of the corn grown in the United States was genetically modified, up from 40% in 2003.

With food prices soaring and GM crops posting impressive results in the United States, Argentina and Brazil, the tide of opinion is beginning to turn in Europe. In Britain, the National Farmers’ Union is asking supermarket chains to drop their GM-free requirements for all but organic foods.

And the National Beef Association issued a statement earlier this year demanding that “all resistance” to GM crops “be abandoned immediately in response to shifts in world demand for food, the growing danger of global food shortages, and the prospect of declining domestic animal production.”

Yesterday (Monday), Peter Brabeck, chairman of Nestle SA, the world’s biggest food company, joined the chorus in calling for a change in European policy.

“You cannot today feed the world without genetically modified organisms,” Brabeck, told the Financial Times. “We have the means to make agriculture sustainable in the long term. What we don’t see for the time being is the political will.”

Organic crops are “a nice treat for those who can afford it,” Brabeck said.

“The European Union used political pressure in Africa to prevent some of those countries using genetically modified organisms,” he said. “I don’t think that was necessarily helpful for the agriculture of those countries nor for their supplies.”

Monsanto Chief Executive, Hugh Grant, recently told BusinessWeek that his company would distribute seeds to African farmers royalty free. However, he was quick to point out that this was not a “feel-good thing,” but that “satisfying the demand curve is a great business opportunity.”

As such, critics have been quick to accuse biotech companies of exploiting the world’s food crisis to further their own agenda.

“Where politicians and technocrats have always wanted to push GMOs, they are jumping on this bandwagon and using this as an excuse,” Helen Holder, who campaigns against biotech foods on behalf of Friends of the Earth, told IHT.

Regardless of that view, policymakers have been forced into reconsidering their once ardent stance against GM crops. The European Union has launched a study into whether increased use of the crops could help to curb soaring food costs across the world. Also, British Prime Minister Gordon Brown has called on the European Union to relax its rules on importing genetically modified animal feed.

“His view is that we must be guided by the scientific evidence,” a spokesman told the Independent.

Should scientific evidence continue to accrue on behalf of GM foods, a company like Monsanto might soon find itself with a whole new crop of clientele.

Source:  “Frankenfoods” Gain Greater Acceptance as Food Prices Skyrocket

The purchase will help Bunge expand its product line to include Corn Products’ starches, syrups and sweeteners.

The deal will help Bunge diversify its sources of revenue with a “solid cash-flow business,” Chief Executive Alberto Weissar told Reuters. Weissar expects the deal to be closed in the fourth quarter of 2008 with a bump in earnings coming as soon as late 2009 or early 2010.

The deal comes at a time when corn prices are soaring amid a run-up in global demand. Corn prices have surged about 75% over the past year and 17.5% since early June when flooding throughout the Midwest lowered the outlook for this year’s crop yield.

By broadening its operations and hosting a more diverse product line, Bunge is attempting erect a barrier between itself and soaring commodities prices. The deal will also help the company maintain a healthy cash flow, as the global market for starches and sweeteners alone is growing by approximately 5% each year, according to the Chicago Tribune.

Corn Products clientele includes some of the biggest beer and food makers in the world. A deal with Bunge gives it the platform to expand its customer base as well as its own operations.

“This merger puts us in a situation where in almost any spot in the world, we can handle the larger customers,” Corn Products Chairman and Chief Executive Officer Sam Scott said in a statement.

They estimate annual cost savings of $100 to $120 million, primarily through the elimination of duplicate procurement and logistical expenses. Analysts agree that the deal makes sense.

“Our first take is that this is a good deal for both companies,” Citibank analyst David Driscoll said in a note to investors. “Corn Products gets a substantial premium to its prior closing price … and Bunge uses its very strong stock as its currency to do the deal.”

Source: Bunge Buys Out Corn Products for $4.4 Billion

As the big dominos of $125 oil, $4 copper, $6 corn, and $1,000 gold fall onto the market, raw-material producers enjoy record cash flows. The next domino is all the cash finding its way to companies that supply equipment, services, and infrastructure to those producers.

If you’ve listened to our commentary on oil services, you’ve probably made a lot of money. But don’t forget companies like John Deere… Don’t forget the “ag services.”

John Deere is America’s largest farm-equipment maker. Think tractors, hay balers, plows, mowers, planters, and combines. Deere expects the booming farm economy to push up ag equipment sales by 35% in 2008. Shares are in a smooth uptrend. Like oil-service stocks, expect ag services to keep rising in response to high corn and bean prices.

Source: The Other Way to Make a Fortune in ‘Services’

If you thought the big money in commodities had run its course, think again. Right now, a desperate search is underway to locate supplies of the world’s newest commodity.

It’s so scarce that dealers won’t reveal to anyone where they score their supplies. But thanks to my inside contact, I’ve discovered the inside scoop. Now it’s your turn to get there first and easily triple your money!

I’ve recently identified this unique “black market” commodity situation, and if you are one of the first to jump on this opportunity you could see your investment grow exponentially. Allow me to explain…

You see, the blazing-hot commodity I’ve uncovered is in a brand-new part of the raw materials sector is desperate to get a hold of… but simply can’t find a healthy enough supply.

The little-known commodity is vital to many multibillion-dollar corporations’ bottom lines. Names like BHP, La Forge and Rio Tinto all stand to lose billions of dollars each month if they can’t replenish their supply NOW!

The Commodity Crisis You Won’t Hear About on CNBC

You’ve heard about skyrocketing oil prices, and $2,000 gold predictions. In short, we are in the middle of a massive global commodity boom.

But this new crisis is one few have heard about. This precious information has been kept under wraps by these companies because of the fierce competition for their dwindling supplies. In fact, the shortage of this commodity is getting so critical, industry insiders fear a dangerous black market is looming.

Thanks to my global network of contacts, I’ve managed to pinpoint the absolute best way to play this new commodity crisis. With classified information from one such well-placed contact, I’ve just uncovered a document that could be worth a substantial amount of money to this company I’m about to recommend… which could, in turn, mean a massive fortune for you.

Because you’re a valued Taipan Daily subscriber, I wanted to get this information to you before it hits the mainstream media. That way, you can get in first and enjoy a very lucrative ride.

This is an extremely time-sensitive situation, so let me give you a quick overview of the opportunity…

Secret Location Revealed!

I just received an overnight delivery of a packet of information, sent to me by my trusted source, which reveals the location of a vast reserve of this new “black market” commodity. It is certain to give one of these companies a giant leg up on the competition.

The fantastic news is that the company I just uncovered is set to make a killing and could deliver early investors a 127% gain in the next few months.

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In just a moment, I’ll tell you how to get your hands on this report. But first, let me fill you in on more about this situation…

This won’t be the first time a commodities stock has delivered huge gains. In fact, commodities stocks have been on fire for the past two years:

• Consol Energy (CNX:NYSE), the No. 1 play on coal mining, skyrocketed 140% since the beginning of 2006!
• Freeport McMoRan Copper & Gold (FCX:NYSE) shot up 119% since 2006!
• Kaiser Aluminum Corp. (KALU:NASDAQ) jumped 65% since 2006!
• Randgold Resources Ltd. (GOLD:NASDAQ) exploded returning a hefty 200% since 2006!

And now it’s about to happen again with the commodity company I’ve discovered.

Your Last Chance to Receive This Urgent Information

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Source: Beat the ‘Black Market Commodity Crisis’ With This Little Known Resource Gem

But we’re not done yet. The Senate Commerce Committee hears today from none other than George Soros, who, according to the Financial Times, will “tell US lawmakers that ‘a bubble in the making’ is under way in oil and other commodities and that commodity indices are not a legitimate asset class for institutional investors.”

Not that there aren’t fundamental factors at work in the commodity boom, Soros believes, but the boom is being transformed into a bubble as institutional investors pile into commodity index funds. According to his prepared remarks, “When the idea was first promoted, there was a rationale for it … But the field got crowded and that profit opportunity disappeared.”

“Nevertheless, the asset class continues to attract additional investment just because it has turned out to be more profitable than other asset classes. It is a classic case of a misconception that is liable to be self-reinforcing in both directions.”

As I’ve pointed out before, a primary reason institutional investors are piling into these indices is that they’re shelter from a falling dollar. As fiat paper is inflated into infinity, hedge funds and pension funds seek shelter in real, tanigble stuff.

I’m sure Soros knows this. Whether he’ll actually address this aspect of it today is another matter. Obviously, with such famous trades as his bet against the British pound in 1992, Soros knows a thing or two about falling currencies and how to make money off it. So I’m not really sure what he’ll be getting at today with his testimony.

And here’s something even more puzzling: “Mr Soros will say a crash in the oil market ‘is not imminent’. But he says it is desirable to discourage commodity index investing – or the ‘elephant in the room’ in the futures market – though not with more regulation.”

If more regulation is not the solution — and surely it’s not — what on earth is he doing testifying before a committee that’s looking for scapegoats and excuses for more regulation?

Source: Just What is Soros Getting at?

As you might expect, the U.S housing slump is reducing demand for finished lumber. Meanwhile, timber, pulpwood, and paper prices are rising worldwide – but curiously, profit margins are eroding.

What’s up with that?

The global commodity boom has created a supply/demand price imbalance between the four distinct industry sectors that rely on timber as a raw material. In fact, that imbalance is a huge mismatch. And savvy investors may be able to wring substantial returns from the winner.

You see, timber companies have shrewdly maintained monopoly-like control of raw materials to hold the line on prices, despite the economic downturn. They are doling out enough – and only enough – supply to maintain sufficient revenue streams to pay the bills. Meanwhile, their downstream relatives are suffering.

In a sense, timber owners are weathering the storm. And when the storm is over, their profits should explode.

It’s a complicated scenario being driven by a number of economic factors including the declining U.S. dollar, classic market demand/supply ratios, emerging markets growth, and even export quotas and tariffs.

Investors who tune in may catch lightning in a bottle. The end game could send timber company profits – and your portfolio – soaring in the next 12 months to two years.

Let’s take a look.

Housing Slump Wreaks Havoc on Lumber Mills

As lumber prices have swooned to a five-year low, wood has been piling up at lumber mills. Sawmills throughout the United States and Canada have been reeling since the second quarter of 2007, when lumber prices collapsed to below the cost of production.

Here’s what’s happening now:

* In the United States, single-family-housing starts dropped 1.7% in April to a seasonally adjusted annual rate of 692,000 units, the lowest monthly production rate since January 1991, and a jaw-dropping 42% below 2007.
* U.S lumber consumption is expected to drop, from 64 billion board feet to 43 billion board feet from 2006 to 2008. A drop of 21 billion board feet in the span of three years is simply staggering, equal to the total production of the Top 20 softwood lumber producers in the U.S. market for all of 2007.
* North American lumber at the Chicago Mercantile Exchange has fallen as low as $209 per thousand board feet, down a whopping 56% from its peak of $473 in 2004 – at the apex of the housing boom.
* Lumber companies in the Billion Board Foot Club, a measurement of the largest lumber companies in the world, was reduced from 22 to 15 in 2007. Six of the victims to be cut were in North America.

Particularly hard-hit are the big lumber mills in Canada, which ship much of their production to the United States. The key factor was the unprecedented run-up in the Canadian dollar. With sales denominated in U.S. dollars and costs accrued in Canadian dollars, a wide range of Canadian producers were running in the red and simply ran out of money.

In addition, Canada mills must pay a 15% duty to ship lumber into the United States. That puts the price at those mills at about $175 per thousand board feet, said Gerry Van Leeuwen, vice president at International Wood Markets Group, a Vancouver-based lumber consulting firm. “There is just no way anyone is making any money,” he added.

In the past, sawmills only needed to wait for interest rates to decline before ramping up production. Now, however, they will have to wait until the housing glut is over before lumber demand gets back to normal.

And that’s not likely until mid-2009 at the earliest. Our advice is not to bet the farm on lumber companies right now.
Global Growth Buoys Pulpwood and Paper Mills

Meanwhile, pulpwood and paper has been in a strong bull market for almost two years. Demand for paper and pulp remains strong – from overseas markets, in particular. And that demand doesn’t appear likely to ebb anytime, soon.’

Overall, world paper demand is moving ahead, buoyed by accelerating growth in Asia. The surge in paper demand in Asia is driving a huge appetite for both virgin pulp and recycled fiber. In 2006, alone, China’s imports of wood pulp jumped 150% to 7.5 million tons.

Increased exports have also helped pulpwood prices. The weak U.S. dollar makes it cheap enough for pulp and paper companies to purchase products in the United States and ship them overseas.

On top of that, demand from European utility companies for wood pellets should keep pulpwood prices elevated. Believe it or not, European utilities have turned to wood chips to produce power in order to lower their greenhouse gas emissions in accordance with the Kyoto protocol.

So you would think paper and pulpwood mills would be humming along, bringing in record profits.

Don’t make that bet.

The Big Squeeze

There is a huge fly in the ointment for pulpwood-and-paper mills.

Paper mills, of course, rely on pulpwood as raw material. Pulp mills, in turn, operate on small logs and wood chips – a byproduct of lumber production. And, as you might expect, the weak market has lumber mills cutting back on production. This is forcing pulpwood mills to rely on buying more logs or raw timber, says Daniel Stuber, of Forest2Market.com,. The lack of available chips has produced a big demand for small, lower quality logs.

The fact is, pulp mills are using twice as many logs as they normally would to satisfy production levels. And they’re getting hit right in the wallet.

“One of the bright spots for timberland owners is the demand from the pulp-and-paper industry,” Stuber said. “Land owners have been withholding stands with larger trees until saw-timber prices rebound, but they have been able to generate revenue through thinning practices and harvesting younger stands.”

In the U.S., gold majors like Newmont and AngloGold are widely held and fully valued. Australian mining giant BHP Billiton is now a regular holding of big mutual funds. Most people can look at their electric bill and realize the prices of coal and natural gas have soared in recent years. Share prices of the big coal and natural gas producers have climbed in response.

In other words, after years of commodities climbing in price, everyone wants to own them. That’s what makes the story of the Pilbara so amazing…

The Pilbara region of western Australia looks a lot like stretches of Utah… burnt oranges and reds highlighted by spinifex, a bushy grass unique to Australia. But the special thing about this place from an investor’s perspective is this: The Pilbara is home to the world’s single largest deposit of high-grade iron ore… more than 34,000 million tonnes of it. It’s enough to supply the entire world, at current rates of demand, for the next 300 years… and it’s enough to turn the Pilbara into ground zero in the world’s commodity boom.

For years, big mining companies like BHP and Rio Tinto had a lock on the Pilbara’s richest deposits. But not all of them.

The slightly lower-grade ores elsewhere in the Pilbara, or the ones that were simply too far away from BHP’s and Rio’s existing rail and port networks, were left untouched. Now, though, with contract iron ore prices up 320% since 2003 (by comparison, gold is up “just” 147%), it’s a whole different story in the Pilbara.

These days we focus a lot on the importance of energy to our comfortable way of life. But the industrial skeleton on which the infrastructure of a modern economy rests is made of iron and steel. Nations that have it become great. Nations that don’t have it will do just about anything to get it.

Right now, China is doing anything to get it.

China has gone from being a net importer of steel to a net exporter in the last six years. According to the China Iron and Steel Association, China produced 151 million tonnes of steel in 2001. This year, China is on track to produce nearly 540 million tonnes of steel, a 205% increase in six years. China is now the world’s largest steel producer… with an output over three times larger than No. 2, Japan.

To produce steel, you need iron ore. Australia is home to 16% of the world’s iron ore reserves.

China imported 115 million tonnes of Australian iron ore in 2002, 148 million in 2003, and 208 million in 2004. It imported more than 240 million tonnes in 2005, 326 million in 2006, 384 million in 2007, and is on pace to import nearly 453 million tonnes this year. Those imports amount to more than 42% of global iron ore exports.

China needs all that ore to make all that steel because its economy is still rocketing along at 11% growth, according to the latest figures. You can never quite trust government figures, of course. It could be more. It could be less. But either way, it’s a lot… and it’s making Australian miners a fortune right now.

As we enter 2008, Australia is exporting iron ore, coal, gold, and other commodities to the tune of A$117 billion in earnings, according to the Australian Bureau of Agriculture and Resource Economics (ABARE). ABARE projects export earnings of A$20.2 billion for iron ore producers alone.

Just how big those earnings will actually be depends on the new contract price for iron ore in 2008. Right now, there isn’t a new contract price between Aussie ore companies and Chinese steel makers. In late February, China’s biggest producer, Baosteel, agreed to a 71% increase with Brazilian ore giant Vale.

But Chinese steel producers are stubbornly holding out against the even bigger increase Aussie producers are asking for. The Australians want at least an 85% increase and want to include a “freight premium” that reflects the lower cost of shipping Aussie ore to China.

The clock is ticking… An 85% increase over last year’s contract price of $83.40 a tonne would put the 2008 price at $154.29, about 14% higher than the $132.20 Baosteel agreed to pay Vale. If no agreement is reached by the end of June, Aussie firms are free to sell iron ore in the spot market, where Indian ore has traded between $120 and $150 over the last six months.

This is great news for the Pilbara and its junior iron ore stocks. In fact, the anticipation of higher iron ore prices and Chinese demand has already pushed some iron ore juniors up on the year. The third major player in the Pilbara, Fortescue Metals, is up 60% year-to-date and is a prime buyout target for Chinese investors. Midwest Corporation is up 30% and may soon become the first Australian company to fall to a hostile Chinese takeover.

It’s not just big miners like BHP Billiton and Rio Tinto that stand to profit from the bull market in steel. With or without a new contract price by June 30, a whole new gang of junior ore stocks will benefit from a market that just keeps getting bigger… and for investors, better.

Good investing,

Dan Denning

P.S. You don’t get many chances in life to participate in a full-blown mining boom… where the gains regularly reach hundreds of percent. It’s especially rare to participate in one that’s totally unknown by the majority of American investors. Right now, one is taking place in Australia. Click here to learn more about the best way to participate.

Source: The Last Secret Left in the Mining Industry 

I am racking up the frequent flyer miles this year. My travels in 2008 have taken me to exotic locales like Singapore, Hong Kong and Dubai, as well as somewhat less exotic locales like the American Midwest. But guess what, the Midwest is the place that’s making the headlines in Singapore, Hong Kong and Dubai. The soaring price of agricultural commodities like wheat, corn and soybeans is one of the biggest news stories on the planet right now.

But ag commodities aren’t just a huge news story, they are also one of the most exciting trading opportunities of 2008 and beyond.

Whether my travels take me to the Middle East or the Midwest of the U.S., the stories are very similar. Most people are concerned about the rising costs of agricultural commodities. And they should be. The commodity boom is real. It is not a bubble, no matter how many folks wish that it were.

In fact, now you have all of these dollar bulls coming out and saying that the worst is over for the dollar and that the commodity bubble will soon burst. They say that the commodities markets are simply speculator-driven. I disagree. Do you remember as a child wishing for something, wishing so hard, yet it didn’t come true? Wishing for something to happen does not mean it will be so. (I never did get that red bike.)

The dollar will probably bounce a little higher, but the same problems that drove the dollar into the basement will persist, and even worsen. The Fed can’t just snap its fingers and wipe away a credit crisis with some stimulus checks. Too many folks are subscribing to the idea that the consumer will somehow come to the rescue and spend our way out of recession. That’s pure fantasy.

The hope that the commodity bubble will burst is also a fantasy. The fact of the matter is that we are in a new paradigm for commodities and the old-school thinking about how commodities used to be traded has to be changed. And this is true of most commodities – none more so than the agricultural ones. Sure, speculation is a part of this puzzle, but to say it’s all speculators and hedge funds that are causing the run-up is a sad mistake.

As I sit here writing this column, I am watching CNN out of the corner of my eye, and on the air is Jonathan Stevens, a baker from a Massachusetts company called Hungry Ghost Bread. He is starting to grow his own wheat and encouraging his customers to do the same. Not a bad idea. For a 50-pound bag of organic flour, he used to pay $25, but now pays around $60. So in back of the store, the bakers are now growing their own wheat. Now, while farming in your backyard may not seem very practical, it’s becoming part of a new reality: If you want to be sure you have the food you need – absolutely sure – you’ll want to grow it where you live.

Most of the world’s inhabitants already understand this essential reality. America’s are just starting to re-discover it. In fact, we’ve even made up a new word to describe this ancient necessity of growing food where you live. The word is “locavore” and it means someone who eats food grown locally. Wow! Very trendy!

Demand for ag commodities is real and it is worldwide. Meanwhile, supplies are stretched thin. So any “supply shock” has the potential to cause prices to soar even higher. A new supply shock might be developing right under our noses. The planting season here in the U.S. is getting off to a very bad start, as the weather has been awful. Torrential rains have flooded many fields, making planting impossible. The U.S. Department of Agriculture reports that only 10% of the corn crop west of the Mississippi has been planted, compared to a five-year average of 35% for this time of year.

Plantings for soybeans, spring-wheat and rice are also trailing behind their five-year averages.

Therefore, this year’s corn crop could be extremely disappointing. Some of the other crops might also disappoint. In my trading service, Resource Trader Alert , we are betting on much higher prices in soybeans and corn, and we are using option spreads to take advantage of this.

My annual meetings with Midwest farmers are always helpful. But my recent meetings with farmers in Minnesota were particularly helpful. Not only did I gain some insights about this year’s crops, I also learned a great deal about the soaring prices of fertilizers and other farming “inputs.” The long and short of it is that input costs are rising about as fast as commodity prices. So many farmers are getting squeezed.

And these rising input costs are here to stay, which probably means that rising grain prices are also here to stay. Yes, prices will fluctuate dramatically. But the bull market in agricultural commodities is very, very real.

Why deny it? Why not trade it?

Regards,

Kevin Kerr
for The Daily Reckoning